The Long and Short of It

When you begin to invest, one decision you will need to make is whether you want to invest short-term or long-term, or both. Either way can satisfy different goals. Both have benefits and rewards, and both can lose you money if you don’t understand the strategies behind them. They are similar of course in that you are putting your money somewhere in hopes that it will increase in value by the time you need it. Both require knowledge of the investment, but short-term investing requires knowledge of the marketplace too. Although the lines can sometimes blur between them, you might distinguish them by considering long-term as investing and short-term as trading.

Long-term stocks are ones you would hold on to for a year or more, maybe even many years, gradually earning over time. These have the potential to grow considerably, especially if you gradually add to your shares and the share price increases. Long term can even provide an income once the investment grows. These demand research so you know they are good companies and able to grow over time; however, once you invest in them, you need to follow them and track them to make sure they remain that way.

Short-term stocks are ones you would hold for less than a year, maybe even a few weeks and try to earn in a shorter time frame. Hopefully the stock will earn the amount you need within that time because the earnings period is somewhat fixed and future performance has to fall within that frame. Short-term stocks may or may not grow continuously over a long period, but they may earn money within a short period if you follow their cycles of rising and falling price. You can reap short-term earnings by buying when prices are down and selling when prices are up. (This same strategy can be used for long-term investment for protection of your principal.)

You don’t want to invest long-term in large sums just because you saw radical spikes or dips on the chart that occurred in a short period, like one or two days, but you might try buying or selling in the short-term based on them. Your trading frequency as well as your risks will increase, compared to long-term investing. Short-term trading of small-cap stocks can be very tricky for the novice. If you don’t understand why the chart is moving, you won’t be able to follow it to do shorter trades. Keep in mind that the shorter the return time you place on potential earnings, the more vigilant you will have to be to profit from it. Even the long-term stocks go up and down so you don’t want the down period to eclipse your anticipated earnings time frame.

The problem in the cannabis sector is that share prices may not be moving up and down for the right reasons. The sector cannot grow freely like other industries until federal legalization. It can’t attract large investors like other sectors because many of the companies are small and so are their share prices. On one hand this is a great time to enter, with caution and study, because the entire industry has fallen to a very low and reasonable price level after a huge explosion in early 2014. On the other hand it attracts opportunists and carpetbaggers because the reporting requirements are less restrictive at the OTC level where almost all of them trade. Behind the scenes selling and buying is not uncommon and can affect the share price. The dips and spikes here might reveal nothing more than money exchanging going on between a few of the deeper pocket investors.

So long-term investment research here would help for both long- and future short-term gains, but be patient about jumping into the short-term trading aspects of the market until you learn about the companies and more about how the market moves—not because you can’t earn money in the short-term but because the short-term gains in this sector might be artificially pumped and share prices could be moving around for reasons other than the functioning of the business.

The best you can do at the early stage of investing is focus on the legitimacy of the company and the overall quality of its business model. The amount of research needed to just vet the scams and dubious ventures in this sector would still give you valuable information, mainly that the company is not a fraud, has a real product, real business plan, and maintains transparency. Focus on that first. Once you find a few good companies you can then follow their price ebb and flow and consider them for shorter investment periods.

Either investment approach requires more study than what one can learn from a single column like this, but start with important simple distinctions like these and then refine that knowledge. It is important not to mistake one approach for the other, since that could lead to disastrous results and a loss of capital. There could be some companies that are not worth a long-term investment, but this might not be good for your short-term strategy either.

You may have to adjust your research priorities in the cannabis sector, but it helps to educate yourself first about what could be the biggest potential loss to your investment. Learning to trade with dubious company shares might not be the best way to really learn trading. Some of these companies may not even be around very long. In time the sector will stabilize and this information may not remain relevant; however, by the time this sector cleans up and increases the number of really good and growing companies, as it most definitely will, you should be in a better position. That’s the real long and short of it.

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